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  • JANUARY 2017

    Securing Property Rights in India through Distributed

    Ledger Technology

    MEGHNA BAL

  • Securing Property Rights in India through Distributed

    Ledger Technology

    MEGHNA BAL

  • ABOUT THE AUTHOR

    Meghna Bal heads Policy Research at Hammurabi and Solomon, a strategic law advisory firm based in New Delhi. Her discursive interests include issues spanning the entire spectrum of Technology Policy, such as regulating cryptocurrencies, artificial intelligence, and spectrum allocation. She played professional golf before foraying into policy studies.

    © 2017 Observer Research Foundation. All rights reserved. No part of this publication may be reproduced or transmitted in any form or by any means without permission in writing from ORF.

  • Securing Property Rights in India through Distributed

    Ledger Technology

    ABSTRACT

    INTRODUCTION

    India registered rapid economic growth over the past couple of years, with the GDP growing 7.6 percent in 2015-2016. While economic activity remains buoyant, however, the country still has a long way to go. The government must capitalise on the current economic momentum and use it to accelerate its reform agenda. One of the areas requiring regulatory attention is the property market. Despite a push for reform through the Digital India Land Records Modernization Programme (DILRMP), India's current land title system remains plagued with deficiencies. There is a need for a standardised property rights regime if India aims to be an economic powerhouse. To bolster current systems, a decentralised, open, and transparent method of record-keeping must be introduced, supplemented by a legal framework capable of guaranteeing and enforcing property rights. A possible solution to the current record-keeping conundrum lies in blockchain technology.

    Over the past couple of years, India has registered rapid economic growth, 1with the GDP growing 7.6 percent in the last fiscal year. The country's

    economic profile has also witnessed a shift over a long period—from rural- based agricultural production to urban economic activities, and from low-

    1ORF OCCASIONAL PAPER # 105 JANUARY 2017

  • 2value manufacturing to high-value services. The economy is on track to maintain its growth rate for 2016. While economic activity remains buoyant, the country still has a long way to go. The Modi government must capitalise on the current economic momentum and use it to accelerate its reform agenda.

    One of the areas requiring regulatory attention is the property market. After all, a robust property rights system is a prerequisite for sustained

    3economic growth. Secure tenure has been shown to lead to greater land market efficiency, ensure greater access to formal channels of credit, incentivise investment in physical and human capital, strengthen growth performance, reduce macroeconomic volatility, and encourage equitable

    4and efficient distribution of economic opportunity.

    The world is currently in the midst of a post-industrial digital revolution—epitomised by information intensity, connectivity,

    5specialisation, and globalisation. This new technological era has the potential to enable an ecosystem in which society is motivated by collaborative interests rather than individual gain. To harvest the benefits of this technology-centric paradigm, the Modi government launched the ambitious Digital India Mission in 2014, whose cornerstone is the provision of reliable and current data to facilitate efficient delivery of

    6government services. Yet, the information architecture that houses this data currently resides in a set of disparate databases. The current system still allows for the alteration or manipulation of data with relative ease. This problem is especially pervasive in the case of land records. The centralised control over the land records and registration systems in the

    7States offers minimal transparency and accountability. As a result, critical data is often unavailable, leading to inordinate delays in real-time decision-making. Poor land record-keeping makes buying land difficult,

    8leading, in turn, to delays in infrastructure projects. Land is often acquired for development projects, but the 7/12 land extract (an extract from the land register maintained by the revenue department) does not

    2

    SECURING PROPERTY RIGHTS IN INDIA THROUGH DISTRIBUTED LEDGER TECHNOLOGY

    ORF OCCASIONAL PAPER # 105 JANUARY 2017

  • reflect these changes. Fraudulent land transactions are rampant as a result 9of this administrative deficiency. In certain cases, people mortgage

    10government-acquired properties to obtain bank loans. Though a central government program to digitise and update land records was relaunched in 2016—the Digital India Land Records Modernization Program (DILRMP)—it is still left open to similar iniquities.

    India must institute a standardised property rights regime if it aims to be an economic powerhouse. To bolster current systems, a decentralised, open, and transparent method of record-keeping needs to be introduced. This must be supplemented by a legal framework capable of guaranteeing and enforcing property rights. A possible solution to the current record- keeping conundrum lies in blockchain technology.

    The analytical discussion of the economic benefits of land titling and registration has evolved—from theoretical discussion and descriptive statistics to a discussion based on increasingly rigorous quantitative

    11analyses. Significant efforts have been made by researchers across the globe to quantify the economic benefits of secure ownership, in general, and land registration systems in particular. For example, a study in India

    12found that land registration leads to significant interest payment savings. The quantification of economic impacts is relevant to policy-makers, as it helps demarcate potentially worthy targets for public spending.

    The impact of land registration on investment has also been thoroughly examined in many parts of the world. In Costa Rica, for example, it was found that a correlation existed between the degree of

    13tenure security and farm investment per unit of land. Meanwhile, in 14Thailand, land titling was found to stimulate land transactions, and in

    Indonesia, it was established that higher security of tenure led to higher 15land prices.

    THE ECONOMICS OF LAND REGISTRATION

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    SECURING PROPERTY RIGHTS IN INDIA THROUGH DISTRIBUTED LEDGER TECHNOLOGY

    ORF OCCASIONAL PAPER # 105 JANUARY 2017

  • Peruvian economist, Hernando De Soto, is among the leading proponents of the merits of secure tenure. He argues that the lack of a formal property rights system is the root cause of poverty in developing nations and is responsible for the proliferation of informal real estate and employment sectors. He coined the term,'dead capital', to refer to assets that cannot be easily transacted, valued or used for investment. Slums are a good example of dead capital, as their residents are scarcely able to realise the economic potential of the land they live on. Through empirical studies, De Soto calculated that the total value of dead capital in the Global South is

    16around USD 9.3 trillion. He says that with the introduction of a formal property regime, the poor can begin to look at their assets as more than just shelter, and begin to leverage property to gain access to credit and grow their business. It is important to note that De Soto is currently

    17assisting Georgia's effort to develop a blockchain land registry.

    Before discussing how blockchain technology can effect better land administration outcomes, it is important to understand the key features of India's land administration system. A distinction exists between land records and land registration and the way in which these recordings have evolved historically. Land records were introduced swiftly in India after

    18colonisation, in rural areas with agricultural potential. Forests and urban areas were excluded from the purview of this recording system. Land records aimed not to document rights but to collect taxes. Land revenue became the main source of government income throughout the colonial

    19period. The system of registration of documents concerning transfers of immovable property was first introduced by the Bengal Regulation XXXVI of 1793, the Bombay Regulation IV of 1802, and the Madras Regulation

    20XVII of 1802. The Acts authorised the Registrar to register sale deeds, gift 21deeds, mortgage deeds, wills, and leases. These were followed by a series

    of enactments which culminated in the Registration Act of 1908. The

    INDIA'S LAND ADMINISTRATION SYSTEM

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    SECURING PROPERTY RIGHTS IN INDIA THROUGH DISTRIBUTED LEDGER TECHNOLOGY

    ORF OCCASIONAL PAPER # 105 JANUARY 2017

  • Registration Act applied to all British Indian provinces, providing for the registration of all documents related to the transfer of immovable property. Things remained largely the same after Independence. The newly independent Indian regime kept the colonial system for land

    22records and land registration largely intact. Rural areas depend primarily on land records maintained by the Revenue Department, whereas in urban settlements, people are more reliant on registration of deeds through the Stamps and Registration Department. Since Independence,

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